The survey of 61 economists, taken over the past week, gave
just a 30 percent chance of a rate hike by year-end, well down from the median
55 percent forecast in last month's poll.
Only 20 analysts predicted a rate hike this year compared
with 35 one month ago.
The economists were unanimous that the Monetary Policy
Committee would leave Bank Rate at a record low of 0.5 percent when it meets on
Thursday, June 10.
Median forecasts from the poll suggest rates would rise in
the first quarter of next year to 0.75 percent, then to 1.0 percent by end-June
and finish the year at 2.0 percent.
That delay in forecasts for a rate rise to early next year
underscores how the European debt crisis and accompanying austerity measures
have shaken expectations of when the BoE — as well as other central banks —
will begin normalizing policy. The UK is faced with heavy fiscal consolidation
measures to cut the public deficit," said Danielle Haralambous at 4Cast.
"Expansionary monetary policy is likely to be
maintained in order to offset this contractionary effect."
Prime Minister David Cameron's coalition government has
outlined plans to trim an initial 6.2 billion pounds from public spending this
year and has made tackling the budget deficit, running at close to 11 percent
of GDP, its top priority.
The government, formed after an inconclusive election on May
6, is trying to secure the country's recovery from an 18-month recession that
ended in late 2009, later than other developed nations.
But across the English Channel, things are looking similarly
shaky. A separate Reuters poll on Wednesday showed the European Central Bank
will hold rates at their record low of 1.0 percent
until next April at least, later than in the previous
survey.
The ECB is struggling to maintain the 16-nation bloc's
recovery in the face of investor insecurity churned up by the region's debt
crisis.
The Bank of England has been faced with the double-whammy of
a sluggish recovery from the worst recession since the World War II while
inflation has soared above its 2 percent target. Consumer prices rose 3.7
percent in April on a year ago.
BoE Gov. Mervyn King said temporary factors were largely to
blame and that inflation was likely to ease back to Britain's official 2
percent target within a year. But he said the pace and extent of that expected
fall remain "highly uncertain".
But economists did not feel the MPC had lost credibility in
letting inflation run high. Twenty-eight of 41 disagreed or strongly disagreed
with the statement "With inflation double the
BoE's target and much higher than its main trading partners,
do you think the BoE has lost credibility."
Twelve agreed and one analyst strongly agreed.
The Organization for Economic Cooperation and Development
(OECD) said last week policymakers will have to balance the fragile state of
the economy with the need to maintain credibility when they decide on the pace
of cuts.
"CPI inflation is on a downward trend — indeed VAT is
adding around 1.5 percentage points to the inflation rate — and the OECD's
suggestion that the BoE's credibility may be at stake
is ludicrous," said Peter Dixon at Commerzbank.
The central bank forecasts that CPI should be back on target
by the end of the year or early 2011. Economists in a Reuters poll a few weeks
ago said it would be the first quarter of next year before inflation drops
below target.
